NC incentives bill: No cap for Mecklenburg, no jet fuel tax for American Airlines

Charlotte economic development officials are pleased with a compromise incentives bill released Friday morning that doesn’t include caps on the amount Mecklenburg and other large urban counties could receive.

The bill also exempts jet fuel from sales taxes, a major victory for American Airlines, which operates its second-busiest hub at Charlotte Douglas International Airport.

The compromise bill was released Friday morning. At the Charlotte Chamber’s annual retreat in Durham, Rep. Bill Brawley, a Mecklenburg Republican, said the bill will be good for the Charlotte region.

“This was a win,” Brawley said. He said negotiators signed off on the deal late Thursday night. Economic developers and local government officials from Charlotte and Mecklenburg congratulated him after he described the provisions. The incentives program would run through the beginning of 2019, offering economic developers three years of certainty about how much they can offer prospective companies.

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Gov. Pat McCrory, who is set to sign the $21.74 billion budget later Friday, said he expects the incentives bill to pass Monday or Tuesday. He said the state must stay competitive with other countries, and that he had faced questions about the state’s competitiveness during an automaker recruiting trip to London earlier this year.

The state’s main tax break incentives program, known as the Jobs Development Investment Grant, has been up in the air since March, when the House and the Senate presented different versions of how to renew that program.

The Senate version would have capped the amount of incentives money that projects in Mecklenburg, Durham and Wake counties could receive. In effect, it would have limited those counties to no more than about half of the state’s incentives money, which drew fierce opposition from those counties. More of the money would have been diverted to projects in rural areas, which Senate leaders said need more help.

Airline had sought tax exemption

Exempting jet fuel from the sales tax was a measure sought by American Airlines. The state previously capped jet fuel taxes for airlines at $2.5 million a year, with amounts after that refunded to the company. That cap had been set to expire next year, which would have cost American Airlines millions of dollars.

Lawmakers earlier this year considered a bill to extend the sales tax cap, but the measure unveiled Friday goes farther, enacting the airline-backed proposal for an industrywide exemption from the N.C. sales tax on jet fuel.

Fuel is typically an airline’s biggest expense. Critics had questioned the idea of a tax exemption, noting that jet fuel costs have plummeted and airline profits have soared to record highs. Supporters of a tax cap or tax exemption said taxing jet fuel put North Carolina at a disadvantage compared with other states that don’t have such a tax.

Other provisions

The compromise version of the incentives bill, known as N.C. Competes, also includes provisions that:

▪ Allocate up to $10 million every six months to the JDIG program. Unused amounts from the first six months would roll over and could be used in the same calendar year. The current two-year cap was $22.5 million, so this represents an increase.

▪ Allow an extra $15 million in annual JDIG cap space for a “whale,” or an especially large economic development project. Officially known as a “high-yield project, a “whale” would have to bring at least $500 million worth of investment and 1,750 jobs, and would likely be a large manufacturing plant, such as an automaker.

▪ Require “active participation” from a local agency in order for large, prosperous counties such as Mecklenburg to receive incentives. Brawley said recruiting efforts by the Chamber, Charlotte Regional Partnership and local governments would meet that requirement.

▪ Raise the minimum number of jobs a project must bring to be eligible for a JDIG grant in Mecklenburg and other large, urban counties to 50. The minimum had been 20.

▪ Require local governments in large counties such as Mecklenburg to match One NC grants – a program that gives businesses cash grants for relocating or expanding – on a one-to-one basis, dollar for dollar.

Speaking at the Chamber retreat, McCrory said the state must remain competitive with both its neighbors and international competitors. He said that when he was in London earlier this year trying to lure an automaker to North Carolina – McCrory didn’t say which – he faced questions about the state’s competitiveness.

After a day of meetings, McCrory said he and executives from the automaker went to a pub. Over beers, the talk turned blunt.

“Around 10 o’clock he goes now, let’s talk business,” McCrory said. He said an executive asked: “Why should I move to North Carolina and not Mexico?”

British automaker Jaguar Land Rover passed on North American sites for a new auto plant this year, instead saying it will open a new factory in the Slovak Republic. The company was reportedly considering a site in North Carolina, one of the few Southern states that doesn’t have an automaker.

“We’ve got to take it to another level,” McCrory said. “If you get stagnant, you die.”